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Portfolio > Asset Managers

Don’t Shun Europe, Say Franklin Templeton Portfolio Managers

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Europe’s sovereign debt crisis has created opportunities for U.S. investors, who are growing increasingly enthusiastic about investing in the global markets, a group of Franklin Templeton portfolio managers said Wednesday.

Three portfolio managers from the Franklin Templeton and Mutual Series investment groups were on hand at a media luncheon in New York to discuss themes influencing both the developed and emerging markets—and all agreed that Europe has been overlooked in the race for returns.

“Why invest in Europe? You hear a lot of bad news about Greece and the euro. People ask, ‘Why bother?’ But there are cheap value opportunities in Europe,” said Philippe Brugere-Trelat, executive vice president of Mutual Series and co-portfolio manager of Mutual Global Discovery Fund.

Brugere-Trelat noted that Europe as a single entity doesn’t actually exist, that Europe is an average—“and as you know, averages don’t exist.”

Commonplace thinking, however, overlooks Europe’s diversity, and that means lost opportunities for investors, he said. In particular, global market players tend to lump northern and southern Europe together even though the two regions have distinctly different economies. As a result, the trend over the last year has been a markdown in European equity.

“Northern European countries have been marked down as indiscriminately by investors as the southern part of Europe,” Brugere-Trelat said, adding that investors can find value in northern European companies that offer exposure to North America and China.

A Franklin Templeton Global Investor Sentiment Survey released March 29 reports that more than half of U.S. and global respondentsplan to invest outside their home country in 2011. Those intentions increase over the long term, with 62% of all respondents planning to invest in global markets over the next 10 years.

The survey polled 13,076 people in 12 countries and revealed that while 34% of respondents have investments outside of their own country’s market, only 33% believe their own country’s market will perform better compared with the rest of the world in 2011.

Of the 1,049 U.S. survey respondents, 62% indicated that they believe the U.S. stock market will advance in 2011, but only 27% believe it will perform better than stock markets across the world.

Survey findings revealed a gap between beliefs and actions regarding global investment opportunity. When considering equities in particular, nearly three-quarters, or 73%, of U.S. respondents stated that the best opportunities will lie not only in the U.S. over the next 10 years. However, the survey showed that just 40% of Americans currently have investments outside the U.S. market.

At the media luncheon, Norm Boersma, executive vice president of Templeton Global Equity Group and portfolio manager of Templeton Growth Fund, noted that growth in emerging markets is creating value opportunities in developed market stocks.

“The emerging markets are a well-told story,” Boersma said, adding that the story has been told over the last 10 years. His group has benefited from this emerging markets growth in developed markets, both in Europe and elsewhere.

For example, Boersma said, the Templeton Growth Fund’s No. 1 holding, at 2.40%, is Pfizer. Twenty percent of the health-care company’s earnings are in emerging markets.

Par Rostom, vice president of Franklin Equity Group and portfolio manager of Franklin International Growth Fund, pointed out that rising affluence in some nations is driving opportunities in internet retailing and payments.

For example, Rostom said, one of the Franklin International Growth Fund’s top holdings, MercadoLibre Inc., compares with eBay, but earnings are currently just one-tenth those of the world’s largest online marketplace. That suggests a good value proposition as the Latin American middle class develops.

“Rising affluence will contribute,” Rostom said. “We believe there is growth ahead.”

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